French growth sputters to a halt in 2nd quarter

[August 12, 2011]  PARIS (AP) -- France's economy ground to a halt in the spring as French consumers slashed their spending and exports dried up, in another sign that the global economy is facing rising recessionary threats.

The worse than expected French figures come as policymakers scramble to soothe investor nerves that the country could be the next major economy to lose its coveted triple-A credit rating.

A move Friday by stock market regulators in France and elsewhere across Europe to ban a form of stock market speculation that some are blaming for the turbulent trading in recent days looked to be having some impact, but economists stressed that any rebound was very fragile.

French bank shares were flat or slightly higher in early trading in Paris. Over the past couple of days, stocks like Societe Generale and BNP Paribas have been hugely volatile amid rumours of their financial health.

The European Union's markets supervisor, the ESMA, announced the short selling ban late Thursday night after boosting surveillance of stormy markets earlier in the day. In a short sale, a trader hopes to make a profit by betting on the decline in the price of a share. The practice has been blamed for contributing to market volatility.

Regulators in France, Italy, Spain and Belgium are each implementing the bans, whose details vary from country to country.

The French market regulator, the AMF, said that it is banning for 15 days net short-selling on 11 stocks, including those of banks Societe Generale, BNP Paribas and Credit Agricole and leading insurers.

Belgium's market authority announced a ban on short-selling on financial shares such as leading banks and insurers starting Friday. Belgium had already banned naked short selling, basically a bet on a decline in the price of a share without borrowing the share, since August 2008.

Several countries banned short selling during the financial crisis of 2008 to try to tame volatility. But some experts said the bans actually contributed to a feeling of uncertainty.

Financial professionals derided the short selling ban as misguided and ineffective.

"The decision (of short-selling ban) is more psychological as it seems to strengthen the position of the regulators compared to the speculators," said Dominique Dequidt, a fund manager at KBL Richelieu trading house in Paris. "But the speculators have found ways to by-pass this shorting ban for the last two years, when it was in place in the past so this measure seems more like a complete waste of effort towards the speculators."

News that French economic growth sputtered to a halt in the second quarter will likely raise concerns that the European economy is being impacted by the debt crisis that has afflicted a number of countries and has fueled the turmoil in the markets.

Separate figures from Eurostat, the EU's statistics office, showing that industrial production across the 17-country eurozone fell by 0.7 percent are likely to add to market concerns over the pace of the economic recovery in Europe.

The French economy posted zero growth in the second quarter, national statistics agency INSEE said. Government economists had forecast growth of around 0.2 percent in the period. Consumer spending slumped 0.7 percent and exports stagnated during the second quarter.

Growth in the first quarter was nearly 1 percent, but a sudden reversal in consumer spending and stagnation by the country's exporters has caused the seizing up of the eurozone's second biggest economy.

Economists said the weak performance could reignite investor fears of a downgrade of France's sovereign debt.

"As for France itself, Q2's 0.7 percent drop in consumer spending was the sharpest in nearly 15 years, suggesting that the household sector can no longer be relied upon to support the economy," said Jennifer McKeown, an economist at Capital Economics in London.

France's finance minister took to the airwaves again Friday in a bid to put a positive spin on the weak second-quarter numbers.

"It's not a surprise that the second quarter is worse than the first, we anticipated this," Francois Baroin said in an interview on French radio station RTL. He said the government is sticking with its deficit reduction targets despite the lower growth.

Baroin also pledged France would still achieve its target of 2 percent growth this year, which many economists are skeptical about.

Flagging growth may mean France has to come up with new budget cuts if it is to bring its deficit down to 5.7 percent this year as planned. President Nicolas Sarkozy has tasked Baroin and France's budget minister to bring a list of proposals to a meeting with Prime Minister Francois Fillon August 24.

[Associated Press; By GREG KELLER]

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